by Michael Lebowitz
Real Investment Advice
The Fed’s liquidity fire hose supported the massive government fiscal response to Covid. Through unprecedented asset purchases, the Fed provided enough liquidity to allow the U.S. Treasury to increase its debt burden grossly at historically low yields. Its actions bolstered asset markets and weighed on the dollar in the process.
The Fed is starting to reduce liquidity, and global markets are beginning to stir. The dollar, for one, is on the rise, and with it comes underappreciated consequences.
Most investors know dollar appreciation makes imports cheaper for the U.S. and more expensive for other nations. As such, the dollar affects which countries gain or lose competitive advantages in global trade.
Lesser appreciated, the U.S. dollar is not just America’s currency but the world’s. Its value versus other currencies significantly affects borrowing costs for foreign entities.